THE COMMISSIONER OF INLAND REVENUE v RETRO CIVIL CONSTRUCTION LIMITED [2017] NZHC 309

THE COMMISSIONER OF INLAND REVENUE v RETRO CIVIL CONSTRUCTION LIMITED [2017]NZHC 309 [1 March 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2016-404-002618[2017] NZHC 309IN THE MATTER of the Companies Act 1993BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND RETRO CIVIL CONSTRUCTIONLIMITEDDefendantHearing: 1 March 2017Appearances: C Van Der Merwe for the PlaintiffCJC McLean for the DefendantJudgment: 1 March 2017ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSENBackground[1] The statement of claim filed on 18 October 2016 pleads:(a) The defendant (Retro) owes $101K including $45K PAYE and $53KGST.(b) Refers to the statutory demand of $169K served on 30 August 2016.(c) Retro neglected to pay the $169K.[2] The evidence discloses:(a) The parties agreed, 14 days prior to service of the statutory demand topay the statutory demand sum at $40K per month.(b) That within four months Retro paid that sum off.[3] This overview of matters creates some confusion.[4] Despite their agreement the Commissioner served a statutory demand(although Retro says it has no recollection of having received it). The Commissioner'sevidence is Retro was informed that would be done.[5] But the Commissioner's case is that it is appropriate to proceed with theliquidation application because although the statutory demand was paid, ongoing taxobligations were not – and that explains the reference in the statement of claim atparagraph 8 where it is pleaded that Retro is presumed to be insolvent and unable topay its debts.[6] That said, clearly there is some confusion because paragraph 8 includes thatreference to the fact that the statutory demand sum had not been paid when it was,albeit more than one month after this proceeding was filed.[7] This proceeding therefore is pursued not because of an unsatisfied statutorydemand debt but for another reason, which is not clearly expressed by the terms of thestatement of claim. There is authority permitting a creditor to proceed if there issufficient evidence of insolvency even though the statutory demand debt is paid.Considerations of solvency[8] In this case the Commissioner provides evidence of non payment of ongoingtax obligations – i.e. those continuing to run beyond the date of the parties' agreement.[9] Of course the Court should treat any calculation of tax liability as accurateunless that calculation is challenged by the statutory process available and that has nothappened here.[10] The Court's impression is that Retro thought it had met its debt obligationswhen those were only identified in the statement of claim as relating to the statutorydemand amount. That is not an unreasonable view to be taken of the pleading.[11] But although a past debt is paid that does not excuse Retro's failure to meet itsongoing tax obligations. However it might explain some initial confusion by Retroabout the claim it was defending.[12] The Commissioner says there is clear evidence of ongoing insolvency and thata s 241(4)(a) Companies Act 1993 order for liquidation is appropriate because theevidence is acceptable and the Court is entitled to treat it as conclusive in the absenceof any evidence demonstrating to the contrary.[13] Retro says there is other evidence.[14] Mr Yang, an independent accountant instructed by Retro deposes that:(a) Retro's assets exceed their liabilities, and that assumptions ofinsolvency should not be drawn by reference merely to "balance sheet"considerations alone.(b) There is sufficient liquidity to meet all debts owing.Overview[15] What we have is:(a) Some confusion regarding the state of the agreement reached for thepayment of $169K.(b) That debt was paid.(c) Ongoing tax obligations were not paid.(d) A further debt of $83K remains unpaid.[16] Questions for the Court's consideration include:(a) Whether there is sufficient evidence of insolvency to order liquidation?(b) Should that decision be made now when it has only recently becomeclear that this case was not about non payment of a statutory demand,even though the statement of claim pleaded that Retro neglected to paythe $169K – when their arrangement did not require that payment bythe time the statement of claim was filed, and the evidence now is thatamount was within six weeks thereafter fully paid.[17] In recent days Retro has tried to reach an agreement to pay the outstanding$83K owing. It wants to pay $30K on 3 March, $30K on 3 April 2017 and $30K on3 May 2017 and will continue to pay $30K monthly until it is up to date with itsobligations.[18] By that brief description of matters it is clear this case bears similarity to thatdecided by Gendall AJ in CIR v Aotearoa Coolstores Limited1.1 CIV 2008-454-940 HC Palmerston North.[19] In that case His Honour had previously adjourned the hearing to permit furtheraffidavit evidence of insolvency for the Court's consideration.Summary[20] The Court retains a residual discretion whether or not to make an order forliquidation. There has been a review of the evidence indicating good cause forconfusion about the Commissioner's statutory basis for proceeding.[21] The focus is now primarily upon considerations of insolvency.[22] Retro relies on the evidence of Mr Yang who was instructed to assist Retrowith its affairs prior to this proceeding.[23] No explanation has, by evidence, been offered to explain how and why thedefendant continues to accumulate significant debt monthly.[24] Even if the Court accepted that Retro's assets exceed its liabilities as it claims,that is not conclusive of solvency.[25] Solvency is also about cash flow and about a company's ability to meet currentfinancial demands. Having a wealth of assets is one thing; having insufficient meansto meet current liabilities is another.[26] There is no evidence of Retro having other creditor demands to meet. Howeverin the absence of any explanation for its inability to meet regular ongoingcommitments to the Commissioner, there appears to be no discretionary reason whyan order for appointment of a liquidator should not be made.Conclusions[27] Reasons have been provided however that encourages the Court to offer Retroa final opportunity to pay all its tax debts and as well to prove it can continue to payits ongoing tax responsibilities.[28] The Court directs this hearing be adjourned for call in the liquidation list beforeme on 12 May 2017 at 10:45am.[29] It is the Court's expectation that by that date Retro would have paid all its taxarrears and as well be up to date with its current tax obligations. Also Retro is to paythe Commissioner's 2B costs and disbursements upon this application.[30] Retro's cheque for $30,000 for clearance on 3 March 2017 is to be accepted bythe Commissioner on account of tax arrears, as Retro has proposed.Associate Judge Christiansen